Three Innovation Takeaways from Asia
Posted on Harvard Business Review: December 29, 2010 10:00 AM
Our soon ending year, 2010, has been fascinating. I've had the good fortune to move to a new place (Singapore), which has served as a springboard to experience different cultures and do work in countries like the Philippines and South Korea. I've also had the chance to experience the world of venture capital investing through the small fund that our team in Singapore manages on behalf of the Singapore government.
There are three important things I will take away from this year:
The West is overly discounting Asia's growth potential. I argued a few months ago that the innovation axis was shifting from the West to the East. Silicon Valley remains the global hot spot of innovation, and America continues to churn out innovative companies like Groupon and Bloom Energy. But Eastern companies and entrepreneurs are gaining traction. Chinese companies like BYD are well positioned to lead the electrical vehicle market. Indonesia features a vibrant Internet ecosystem, with emerging startups providing unique services to the local context. Singapore is positioning itself as the global exchange, where West meets East and where India and China are both reachable via relatively short direct flights. And India's nation of entrepreneurs is driving change in market after market. The period of growth that Asia is enjoying still involves a heavy dose of replication and leveraging raw resources, but Western companies that discount the region's innovation potential do so at their own peril.
Innovation has never been more accessible. In October, I described how two entrepreneurs told us about the business they had built—featuring a fully functional website and lead customers—for less than $10,000. I argued in that post that the increasing ease of innovation meant that entrepreneurs were destined to become commodities. That point led to spirited discussion with my VC friends. All things being equal, of course, you'd rather have a skilled entrepreneur than an unskilled one. But just like Autotune and other technologies that allow passable music talents to turn into global powerhouses, lower costs and increased understanding of the process of innovation can allow anyone to be a competent entrepreneur. Companies in industries with fraying barriers to entry need to think about shifting their focus from fighting upstarts to working with them. Companies in industries with strong barriers to entry should think about taking advantage of the increased understanding of innovation to create businesses that only they can.
We're on the verge of a golden age of innovation. The 20th century innovator who had the most impact was probably Henry Ford. By showing the power of scale economics, he ushered in an era where behemoths created processes to spread their businesses around the globe. This quest for efficiency naturally crowded out more exploratory innovation efforts. Entrepreneurs and venture capitalists filled the void in some sectors of the world economy. Academic researchers began to focus more deeply on what historically seemed like the black art of innovation. Big companies began to attempt to manage innovation in a systematic way. As this knowledge continues to build and propagate, I believe there could be a wave of powerful innovation that addresses global challenges like poverty and resource scarcity. In particular, watch for markets that historically were inhospitable to entrepreneurs. There are some businesses that really could only be launched by large, established companies. As these companies figure out how to realize their full innovation potential, we could see some amazing things.
There is lots of work to be done, of course.
There are two areas in particular that I think need greater attention from the innovation community:
The human side of innovation must be addressed. Innovation is, of course, an intensely human behavior. Increasingly, I've heard people at large companies ask how to create human resource systems that support innovation. The first thing I tell them is to make sure they aren't following policies that penalize innovation, particularly policies that punish prudent risk taking. But that's obviously not enough. We need to figure out how to create more systematic ways to track, measure, and reward people following behaviors consistent with successful innovation. We need to make sure we have systems that balance short and long term performance. Finally, we need to develop training programs that give leaders the necessary skills to master the paradoxes that increasingly appear on management's agenda. One book that I'm looking forward to reading next year on this topic is Jeff Dyer, Hal Gregersen and Clayton Christensen's work on The Innovator's DNA.
More focus must go to solving the first mile problem. I've been increasingly telling people that the key to successful innovation is to become a Latter-Day Edison. I particularly point to two great Edison quotes: "Genius is one percent inspiration and ninety-nine percent perspiration," and "Opportunity is missed by most people because it is dressed in overalls and looks like work." Most big companies are built to scale businesses, not start them. In my experience, the biggest challenge is the first mile—when a company takes that critical first step from a plan that looks great on paper to a revenue- and profit-producing business. Of course they can outsource the creation of new businesses to entrepreneurs, but they then have to pay hefty acquisition premiums for the successful opportunities, and they lose the ability to leverage all of their capabilities. Earlier this year, my colleagues Matt Eyring and Clark Gilbert wrote a must-read Harvard Business Review article that provides a conceptual way to address this challenge ("Beating the Odds When You Launch a New Venture"). The next step is developing the processes, tools, systems and structures to help companies more reliably pave the first mile of growth.
Next year, I plan to continue to do my best to make the best innovation thinking accessible to readers, with a particular focus on the ideas in this article. Happy holidays, and thanks for reading.